Healthcare stocks roar back after slump, while biotech IPOs continue stampede into pipeline.

Rising healthcare stocks and fading qualms over an escalating Syrian conflict had Wall St. optimistic to start the week.

Stocks had ended lower on Friday (April 13, 2018) on worries about Syria. But investors seemed less anxious about the potential for retaliation from Russia, an Assad ally, since there was none at the weekend.

UnitedHealth Group Inc. (Minnetonka MN) provided the second-biggest boost to the S&P 500 from a single stock a day ahead of its earnings report with a 2.7% bump up. Merck rose 2.6%, following a 7% spurt last week after it presented positive data on its cancer drug Keytruda, also boosting the S&P healthcare index.

But let’s look at the action last week that set the table for Monday’s (April 15, 2018) continuing momentum.

1) AveXis Inc. (Nasdaq:AVXS) led advancing issues, rocketing 83% on the week to $211.62. Novartis AG agreed to acquire the Bannockburn, IL-based company for $8.7 billion to gain a promising drug to treat a rare disease that afflicts infants, hastening a shift toward gene therapy and precision medicines. Shareholders of the company will receive $218 a share in cash in a tender offer, Novartis said in a statement last week. The price is 88% above where AveXis closed prior to news of the deal.

Steve’s Take: The transaction is Novartis’s second deal to advance in gene therapy this year–and the first led by newly minted CEO Vas Narasimhan, Bloomberg reports. The Swiss drugmaker is redeploying some of the $13 billion in proceeds from the sale of its stake in a health joint venture to partner GlaxoSmithKline PLC (London). AveXis is developing a product to treat spinal muscular atrophy, an inherited neurodegenerative disease caused by a defect in a single gene, which shows the potential to become a blockbuster. Keep an eye on Novartis.

2) Elsewhere, Verastem Inc. (Nasdaq:VSTM) soared 39% over the week to $4.12. The FDA announced that it had granted priority review to Needham, MA-based Verastem’s New Drug Application for duvelisib, the company’s treatment for chronic lymphocytic lymphoma (CLL), small lymphocytic lymphoma (SML) and follicular lymphoma (FL). The FDA’s target action date is October 5th, 2018. Although being granted priority review is by no means a guarantee of approval, it does show that the FDA are cognizant of the urgent need to develop treatments for these aggressive hematological malignancies.

Steve’s Take: Verastem’s drug has clearly demonstrated efficacy in a clinical context in a Phase 3 trial last year, so barring an unlikely turn of events, approval looks likely. If that occurs, the stock will at least double is my guess.

3) Bellicum Pharmaceuticals Inc. (Nasdaq: BLCM) leaped 38% to $8.79 after reporting that the FDA has lifted the clin­i­cal hold it dropped on their stud­ies of BPX-501 after amend­ing their trial pro­to­cols. The Houston-based com­pany did not divulge ex­actly what it had to do, but Bel­licum kept the halt to a rel­a­tively brief time. In­ves­ti­ga­tors rat­tled in­vestors at the end of Jan­u­ary with news that their BPX-501 cell ther­apy–pitched as a safer al­ter­na­tive to cur­rently mar­keted pi­o­neers–had been linked with brain dam­age in pa­tients.

Steve’s Take: The FDA’s earler clinical hold did not have an im­pact on Bel­licum’s reg­is­tra­tional study of BPX-501 in Eu­rope, named BP-004. About a month ago the com­pany re­ported that among 38 pe­di­atric AML pa­tients treated with BPX-501 fol­low­ing hap­loiden­ti­cal hematopoi­etic stem cell trans­plant, re­searchers tracked a me­dian re­lapse-free rate of 91.5% and over­all sur­vival of 97.3% dur­ing a one-year fol­low-up in their BP-004 study. Still, I’d sit this one out until more results here in the US point to the same type of efficacy with the experimental treatment across the Pond.

4) Henderson, NV-based Spectrum Pharmaceuticals Inc. (Nasdaq:SPPI) rocketed 32% to $18.85. The red-hot biotech focused on hematology and oncology announced updated data from a Phase 2 trial that is studying a compound called poziotinib as a hopeful treatment for non-small cell lung cancer. The confirmed objective response rate from the 11-patient trial was 64%. That’s much higher than the 20% to 30% response rate that the study investigators were hoping for.

Steve’s Take: The median, progression-free survival rate has still not been reached even after a median follow up period of 6.5 months. That’s a big positive. Enrollment is exceeding expectations, and the two most common adverse events that were observed in the study are skin rash and diarrhea. If things continue to trend longer-than-expected in survival, I smell a Phase 3 down the line. That’s about when a Big Pharma, anxious to get into the NSCL cancer arena, could come calling. Risky as all heck but a rational bet.

So, what’s this about an IPO stampede? Hold onto your hats; the biotechs just keep a coming.

1) Included among recent SEC filings for initial public offerings, Evelo Biosciences Inc., which is developing microbial therapies that act on the gut to treat inflammatory diseases, registered up to $100 million worth of common stock. The Cambridge, MA-based company was founded in 2014 and plans to list on the Nasdaq under the symbol “EVLO.” Morgan Stanley, Cowen & Co. and BMO Capital Markets are the joint bookrunners on the deal. No pricing terms were disclosed. Evelo Biosciences says the action of their therapies is based on their growing understanding of the central role of the gut in controlling immune and biological activity throughout the body.

2) Elsewhere, Abpro Corp., a preclinical biotech developing novel antibodies for various cancers, registered up to $69 million in an IPO. The Woburn, MA-based company was founded in 2004 and booked $2 million in sales for the 12 months ended December 31, 2017. It plans to list on the Nasdaq under the symbol “ABP.” Abpro filed confidentially on December 22, 2017. UBS Investment Bank and Wells Fargo Securities are the joint bookrunners on the deal. No pricing terms were disclosed. The company says its initial focus is on novel antibody constructs for immuno-oncology, ophthalmology, and autoimmunity.

And three deals are on the calendar for this week looking to raise a combined $354 million.

1) Top billing goes to MorphoSys AG (MOR), a German-listed biotech, which plans to raise $200 million at a $3 billion valuation, making it the largest biotech to list in the US in the last decade. Its lead candidate, MOR208, is an anti-CD19 antibody for diffuse, large B-cell lymphoma (DLBCL). The company recently disclosed positive interim data from an ongoing Phase 2 study. Goldman and JP Morgan are lead underwriters.

2) London’s AIM-listed Mereo BioPharma Group (MREO) is targeting $70 million at a $412 valuation. The company is focused on in-licensing mid-stage rare disease drug candidates from large pharmas. Its lead candidate, BPS-804, is in a Phase 2b trial for adults with brittle bone disease and is expected to begin a Phase 2b/3 trial for children in the 2H18. Cowen and BMO are lead underwriters.

3) And Surface Oncology Inc. (SURF) is expected to raise $84 million at a $405 million valuation. The Cambridge, MA-based biotech has a strategic partnership with Novartis to develop a broad portfolio of next-generation therapies that target a variety of cancers using biological pathways critical to the immunosuppressive tumor microenvironment (TME). Its lead candidate, SRF231, an antibody that promotes phagocytosis (tumor destruction by macrophages) by inhibiting protein CD47, recently began dosing patients for a Phase 1 trial. Goldman and Cowen are lead underwriters.

Bottom Line:

There’s no real end to this IPO storm on the horizon, not with the spectacular clinical results we’re seeing with checkpoint inhibitors, CAR-T cell therapies and CRISPR genome editing.